** **

**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

----

**FORM 10-Q**

 

 

**ý****        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES**

**            EXCHANGE ACT OF 1934**

**For thequarterly period ended September 30, 2001**

** **

**OR**

** **

**o****        TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**

**            EXCHANGEACT OF 1934**

**For thetransition period from           ____to____**

 

**Commission file number 1-10934**

 

**ENBRIDGE ENERGY PARTNERS, L.P.**

*(Exact name of Registrant as specified in itscharter)*

 

| **Delaware**                      |   | **39-1715850**        |
|-----------------------------------|--------|-----------------------|
| *(State or other jurisdiction of* |   | *(I.R.S. Employer*    |
| *incorporation or organization)*  |   | *Identification No.)* |

** **

**1100 Louisiana St.**

**29th Floor**

**Houston, TX 77002**

*(Address of principal executive offices andzip code)*

 

**(713) 650-8900**

*(Registrant's telephone number, includingarea code )*

 

----

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No  o

 

The Registrant had 26,803,634 Class A Common Units outstanding as atNovember 14, 2001.

 

 

 

**TABLE OF CONTENTS**

** **

 

 
| **PART I – FINANCIAL INFORMATION** |
|-----------------------------------------|
|                                    |   |   |
| **Item 1.**                             | Financial Statements |   |
|                                    |   |   |   |   |   |
|                                    |   | Consolidated Statement of Income for the  three month and nine month periods ended September 30, 2001 and 2000 |   |
|                                    |   |   |   |   |   |
|                                    |   | Consolidated Statement of Cash Flows for  the nine month periods ended September 30, 2001 and 2000 |   |
|                                    |   |   |   |   |   |
|                                    |   | Consolidated Statement of Financial  Position as at September 30, 2001 and December 31, 2000 |   |
|                                    |   |   |   |   |   |
|                                    |   | Consolidated Statement of Partners’ Capital  for the nine month period ended September 30, 2001 |   |
|                                    |   |   |   |   |   |
|                                    |   | Notes to the Consolidated Financial  Statements |   |   |
|                                    |   |   |   |   |   |
| **Item 2.**                             | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |   |
|                                    |   |   |   |   |   |
| **Item 3.**                             | Quantitative and Qualitative Disclosures  About Market Risk |   |
|                                    |   |   |   |   |   |
| **PART II – OTHER INFORMATION**    |
|                                    |   |   |   |   |   |
| **Item 1.**                             | **Legal Proceedings** |   |
|                                    |   |   |   |   |   |
| **Item 6.**                             | Exhibits and Reports on Form 8-K |   |
|                                    |   |   |   |   |   |
| **Signature**                           |   |   |   |
|                                         |  |  |  |  |  |  |

 

          *ThisQuarterly Report on Form 10-Q contains forward-looking statements.  These statements are based on the EnbridgeEnergy Partners, L.P.’s (the “Registrant” or “Partnership”) beliefs as well asassumptions made by and information currently available to thePartnership.  When used in thisdocument, the words “anticipate,” “believe,” “expect,” “estimate,” “forecast,”“project,” and similar expressions identify forward-looking statements.  These statements reflect the Partnership’scurrent views with respect to future events and are subject to various risks,uncertainties and assumptions including:*

•    *the Partnership’s dependence upon adequate suppliesof and demand for western Canadian crude oil,*

•    *the price of crude oil and the willingness ofshippers to ship crude oil,*

•    *the successful implementation of thePartnership’s  growth strategy,including the closing of the Koch acquisition as described below,*

•    *regulation of the Partnership’s tariffs by theFederal Energy Regulatory Commission and the possibility of unfavorableoutcomes of future tariff proceedings, and*

•    *the effects of competition, in particular, by otherpipeline systems.*

*If one or more of theserisks or uncertainties materialize, or should underlying assumptions proveincorrect, actual results may vary materially from those described in this Form10-Q.  Except as required by applicablesecurities laws, the Partnership does not intend to update these forward-lookingstatements. For additional discussion of such risks, uncertainties andassumptions, see the Partnership’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2000.*

***PART I – FINANCIAL INFORMATION***

 

***ITEM 1. FINANCIAL STATEMENTS***

 

***ENBRIDGE ENERGYPARTNERS, L.P.***

***CONSOLIDATED STATEMENT OF INCOME***

 
|                                                             |   | **Three months ended** |   | **Nine months ended** |   |
|------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
|                                                             |   | **September 30,**      |   | **September 30,**     |   |
| ***(unaudited;  dollars in millions, except per unit amounts)*** |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Operating Revenue                                                |   | $                      | 75.9   |                  | $      | 74.9 |   | $ | 228.9 |   | $ | 232.0 |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Expenses                                                         |   |                   |   |                  |   |   |   |   |   |
| Power                                                            |   | 12.1                   |   | 10.8                  |   | 36.6 |   | 35.6 |   |
| Operating and administrative                                     |   | 27.5                   |   | 19.8                  |   | 74.3 |   | 57.1 |   |
| Depreciation                                                     |   | 15.8                   |   | 15.3                  |   | 46.9 |   | 45.8 |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
|                                                             |   | 55.4                   |   | 45.9                  |   | 157.8 |   | 138.5 |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Operating  Income                                                |   | 20.5                   |   | 29.0                  |   | 71.1 |   | 93.5 |   |
| Interest  and Other Income                                       |   | 0.7                    |   | 0.5                   |   | 2.2 |   | 2.8 |   |
| Interest  Expense                                                |   | (14.4                  | )      | (15.1                 | )      | (44.6 | ) | (44.9 | ) |
| Minority Interest                                                |   | (0.2                   | )      | (0.2                  | )      | (0.4 | ) | (0.6 | ) |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Net Income                                                       |   | $                      | 6.6    |                  | $      | 14.2 |   | $ | 28.3 |   | $ | 50.8 |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Net Income Per Unit *(Note 3)*                                   |   | $                      | 0.13   |                  | $      | 0.42 |   | $ | 0.72 |   | $ | 1.53 |   |
|                                                             |   |                   |   |                  |   |   |   |   |   |
| Cash Distributions Paid Per Unit *(Note 4)*                      |   | $                      | 0.875  |                  | $      | 0.875 |   | $ | 2.625 |   | $ | 2.625 |   |

 

*See accompanying notes tothe consolidated financial statements.*

 

 

 

***ENBRIDGE ENERGYPARTNERS, L.P.***

***CONSOLIDATED STATEMENT OF CASH FLOWS***

 
|                                                                             |   | **Nine months ended** |           |
|----------------------------------------------------------------------------------|--------|-----------------------|----------------|
|                                                                             |   | **September 30,**     |           |
| ***(unaudited;  dollars in millions)***                                          |   | **2001**              |           | **2000** |   |
|                                                                             |   |                  |           |   |   |
| Cash  Provided from Operating Activities                                         |   |                  |           |   |   |
| Net income                                                                       |   | $                     | 28.3           |   | $ | 50.8 |   |
| Adjustments to reconcile net income to cash  provided from operating activities: |   |                  |      |   |      |
| Depreciation                                                                     |   | 46.9                  |           | 45.8 |   |
| Minority interest                                                                |   | -                     |           | 0.6 |   |
| Other                                                                            |   | 0.2                   |           | (3.1 | ) |
| Changes in operating assets and  liabilities:                                    |   |                  |           |   |   |
| Accounts receivable and other                                                    |   | 4.4                   |           | (9.1 | ) |
| Oil Inventory                                                                    |   | 6.2                   |           | 7.3 |   |
| Materials and supplies                                                           |   | (0.2                  | )              | (0.3 | ) |
| General Partner and affiliates                                                   |   | 7.5                   |           | 0.5 |   |
| Accounts payable and other                                                       |   | 6.5                   |           | (3.8 | ) |
| Interest payable                                                                 |   | 12.5                  |           | 10.8 |   |
| Property and other taxes                                                         |   | (2.2                  | )              | (1.4 | ) |
|                                                                             |   | 110.1                 |           | 98.1 |   |
|                                                                             |   |                  |           |   |   |
| Investing  Activities                                                            |   |                  |           |   |   |
| Repayments from affiliate                                                        |   | 3.0                   |           | 1.3 |   |
| Additions to property, plant and equipment                                       |   | (13.0                 | )              | (10.6 | ) |
| Changes in construction payables                                                 |   | (4.1                  | )              | (2.2 | ) |
| Purchase of Enbridge Pipelines North Dakota  L.L.C.                              |   | (35.4                 | )              | - |   |
|                                                                             |   | (49.5                 | )              | (11.5 | ) |
|                                                                             |   |                  |           |   |   |
| Financing  Activities                                                            |   |                  |           |   |   |
| Variable rate financing, net                                                     |   | (80.0                 | )              | 15.0 |   |
| Loan from Enbridge Energy Company, Inc.,  net                                    |   | 35.7                  |           | - |   |
| Proceeds from unit issuance, net *(Note 7)*                                      |   | 79.9                  |           | - |   |
| Distributions to partners                                                        |   | (84.5                 | )              | (82.8 | ) |
| Minority interest and other                                                      |   | (0.1                  | )              | (0.9 | ) |
| Debt financing costs                                                             |   | (0.3                  | )              | - |   |
|                                                                             |   | (49.3                 | )              | (68.7 | ) |
|                                                                             |   |                  |           |   |   |
| Increase  in Cash and Cash Equivalents *                                         |   | 11.3                  |           | 17.9 |   |
| Cash and Cash Equivalents at Beginning of  Period                                |   | 37.2                  |           | 40.0 |   |
| Cash and Cash Equivalents at End of Period                                       |   | $                     | 48.5           |   | $ | 57.9 |   |

----

**  Cash equivalents are defined as highlymarketable securities with a maturity of three months or less when purchased.*

*See accompanying notes tothe consolidated financial statements.*

 

***ENBRIDGE ENERGY PARTNERS,L.P.***

***CONSOLIDATED STATEMENT OF FINANCIAL POSITION***

 
|                                                                                           |   | **September 30,** |    | **December 31,** |   |
|------------------------------------------------------------------------------------------------|--------|-------------------|---------|------------------|--------|
| ***(unaudited,  except for December 31, 2000; dollars in millions)***                          |   | **2001**          |    | **2000**         |   |
|                                                                                           |   |              |    |             |   |
| ***ASSETS***                                                                                   |
| Current Assets                                                                                 |   |              |    |             |   |
| Cash and cash equivalents                                                                      |   | $                 | 48.5    |             | $      | 37.2 |   |
| Due from General Partner and Affiliates                                                        |   | -                 |    | 1.5              |   |
| Advances to affiliate                                                                          |   | 2.9               |    | 5.9              |   |
| Accounts receivable and other                                                                  |   | 23.6              |    | 25.7             |   |
| Oil Inventory                                                                                  |   | 2.7               |    | 8.9              |   |
| Materials and supplies                                                                         |   | 8.3               |    | 7.7              |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | 86.0              |    | 86.9             |   |
|                                                                                           |   |              |    |             |   |
| Deferred Charges and Other                                                                     |   | 8.5               |    | 7.9              |   |
|                                                                                           |   |              |    |             |   |
| Property, Plant and Equipment                                                                  |   |              |    |             |   |
| At cost                                                                                        |   | 1,633.7           |    | 1,588.5          |   |
| Accumulated depreciation                                                                       |   | (353.0            | )       | (306.6           | )      |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | 1,280.7           |    | 1,281.9          |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | $                 | 1,375.2 |             | $      | 1,376.7 |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   |              |    |             |   |
| ***LIABILITIES AND  PARTNERS' CAPITAL***                                                       |
| Current Liabilities                                                                            |   |              |    |             |   |
| Due to General Partner and affiliates                                                          |   | $                 | 6.0     |             | $      | - |   |
| Loan from Enbridge Energy Company, Inc.                                                        |   | 35.7              |    | -                |   |
| Accounts payable and other                                                                     |   | 19.8              |    | 17.4             |   |
| Interest payable                                                                               |   | 19.0              |    | 6.5              |   |
| Property and other taxes                                                                       |   | 12.3              |    | 14.4             |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | 92.8              |    | 38.3             |   |
|                                                                                           |   |              |    |             |   |
| Other Deferred Credits                                                                         |   | 1.6               |    |             |   |
| Long-Term Debt                                                                                 |   | 719.3             |    | 799.3            |   |
| Minority Interest                                                                              |   | 3.5               |    | 3.2              |   |
| Contingencies *(Note 5)*                                                                       |   |              |    |             |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | 817.2             |    | 840.8            |   |
|                                                                                           |   |              |    |             |   |
| Partners' Capital                                                                              |   |              |    |             |   |
| Class A Common Unitholders (Units  authorized and issued - 26,803,634; 2000 – 24,990,000) |   | 510.7             |    | 488.6            |   |
| Class B Common Unitholder (Units authorized  and issued - 3,912,750)                           |   | 43.3              |    | 42.1             |   |
| General Partner                                                                                |   | 5.6               |    | 5.2              |   |
| Accumulated other comprehensive loss *(Notes 8  & 9)*                                      |   | (1.6              | )       | -                |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | 558.0             |    | 535.9            |   |
|                                                                                           |   |              |    |             |   |
|                                                                                           |   | $                 | 1,375.2 |             | $      | 1,376.7 |   |

 

*See accompanying notes to the consolidated financial statements.*

 

***ENBRIDGE ENERGYPARTNERS, L.P.***

###### ***CONSOLIDATED STATEMENT OFPARTNERS' CAPITAL***

 

 
| ***(Unaudited, except for***                         |   | **Class A**     |   | **Class B**    |   |        |   | **Other**         |   | **Total**                  |   |
|------------------------------------------------------|--------|-----------------|--------|----------------|--------|-------------|--------|-------------------|--------|----------------------------|--------|
| ***December  31, 2000;***                            |   | **Common**      |   | **Common**     |   | **General** |   | **Comprehensive** |   | **Consolidated**           |   |
| ***dollars  in millions)***                          |   | **Unitholders** |   | **Unitholder** |   | **Partner** |   | **Loss**          |   | **Partners’ Capital** |   |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Partners'  Capital atDecember  31, 2000              |   | $               | 488.6  |           | $      | 42.1        |   | $                 | 5.2    |                       | $      | - |   | $ | 535.9 |   |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Allocation  of net proceeds from  unit issuance |   | 71.6            |   | 7.5            |   | 0.8         |   | -                 |   | 79.9                       |   |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Net Income Allocation                                |   | 17.6            |   | 4.0            |   | 6.7         |   | -                 |   | 28.3                       |   |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Distributions to Partners                            |   | (67.1           | )      | (10.3          | )      | (7.1        | )      | -                 |   | (84.5                      | )      |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Floating to fixed interest rate swaps                |   | -               |   | -              |   | -           |   | (1.6              | )      | (1.6                       | )      |
|                                                 |   |            |   |           |   |        |   |              |   |                       |   |
| Partners' Capital at Sept. 30, 2001                  |   | $               | 510.7  |           | $      | 43.3        |   | $                 | 5.6    |                       | $      | (1.6 | ) | $ | 558.0 |   |

 

*See accompanying notes to the consolidated financial statements.*

 

 

 

 

***NOTES TO THE CONSOLIDATED FINANCIALSTATEMENTS******(unaudited)***

 

 

1.      Basis of Presentation

 

The accompanying unaudited consolidated financial statements have beenprepared in accordance with United States generally accepted accountingprinciples for interim financial information and with the instructions to Form10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, they contain all adjustments that management considers necessary topresent fairly the financial position at September 30, 2001 and December 31,2000; the results of operations for the three and nine month periods endedSeptember 30, 2001 and 2000; and cash flows for the nine month periods endedSeptember 30, 2001 and 2000.  Theresults of operations for the three and nine months ended September 30, 2001should not be taken as indicative of the results to be expected for the fullyear.  The interim financial statementsshould be read in conjunction with the Partnership's consolidated financialstatements and notes thereto presented in the Partnership's Annual Report onForm 10-K for the fiscal year ended December 31, 2000.

 

2.      Comparative Amounts

 

Certain comparative amounts have been reclassified to conform with thecurrent quarter’s financial statement presentation.

 

3.      Net Income Per Unit

 

Net income per unit is computed by dividingnet income, after deduction of the General Partner's allocation, by theweighted average number of Class A and Class B Common Units outstanding.  The General Partner's allocation is equal toan amount based upon its 1% general partner interest, adjusted to reflect anamount equal to incentive distributions and an amount required to reflectdepreciation on the General Partner's historical cost basis for assetscontributed on formation of the Partnership. Net income per unit was determined as follows:

 
|                                                                  |   | **Three months ended** |   | **Nine months ended** |   |
|-----------------------------------------------------------------------|--------|------------------------|--------|-----------------------|--------|
| ***(unaudited; dollars in millions,***                                |   | **September 30,**      |   | **September 30,**     |   |
| ***except per unit amounts)***                                        |   | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Net income                                                            |   | $                      | 6.6    |                  | $      | 14.2 |   | $ | 28.3 |   | $ | 50.8 |   |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Net income  allocated to General Partner                              |   | (0.1                   | )      | (0.1                  | )      | (0.3 | ) | (0.5 | ) |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Incentive distributions  and historical cost depreciation adjustments |   | (2.2                   | )      | (2.1                  | )      | (6.4 | ) | (6.2 | ) |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
|                                                                  |   | (2.3                   | )      | (2.2                  | )      | (6.7 | ) | (6.7 | ) |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Net income  allocable to Common Unit                                  |   | $                      | 4.3    |                  | $      | 12.0 |   | $ | 21.6 |   | $ | 44.1 |   |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Weighted Average Common  Units outstanding *(millions)*               |   | 30.7                   |   | 28.9                  |   | 29.8 |   | 28.9 |   |
|                                                                  |   |                   |   |                  |   |   |   |   |   |
| Net income per  unit                                                  |   | $                      | 0.13   |                  | $      | 0.42 |   | $ | 0.72 |   | $ | 1.53 |   |

 

4.      CashDistribution

 

On October 25, 2001, the Board of Directors of the General Partner declareda cash distribution for the quarter ended September 30, 2001 of $0.875 perunit.  The distribution was made onNovember 14, 2001 to Unitholders of record on October 31, 2001.

 

5.      EnvironmentalContingencies

 

ThePartnership is subject to federal and state laws and regulations relating tothe protection of the environment. Environmental risk is inherent to liquid pipeline operations and thePartnership could, at times, be subject to environmental cleanup and enforcementactions.  The General Partner managesthis environmental risk through appropriate environmental policies andpractices to minimize the impact to the Partnership.  To the extent that the Partnership is unable to recoverenvironmental costs in its rates (if not recovered through insurance), theGeneral Partner has agreed to indemnify the Partnership from and against anycosts relating to environmental liabilities associated with the pipeline systemprior to its transfer to the Partnership in 1991.  This excludes any liabilities resulting from a change in lawsafter such transfer.  The Partnershipcontinues to voluntarily investigate past leak sites for the purpose ofassessing whether any remediation is required in light of current regulations,and to date no material environmental risks have been identified.

 

 

6.     Acquisitionof Enbridge Pipelines (North Dakota) L.L.C.

 

*On May 18, 2001, the Partnership completed its acquisitionof the assets of Enbridge Pipelines (North Dakota) L.L.C. (“ND L.L.C.”) for anaggregate purchase price of $35.4 million which included working capital andtransaction costs.  This acquisition wasaccounted for using the purchase method and ND L.L.C. results of operationshave been included in consolidated earnings since the date of theacquisition.  The purchase price hasbeen allocated to current assets, liabilities and to property, plant andequipment acquired on the basis of estimated fair values with property, plantand equipment being depreciated over the economic life of the assets.  The acquisition was funded with a short-termloan from the General Partner.*

* *

7.     CommonUnits

 

*During the second quarter of 2001, the Partnership issued anadditional 1,813,634 Class A Common Units, which generated proceeds, net ofissuance expenses, of approximately $79.9 million and has reduced the effectiveownership interest of Enbridge Energy, Inc. (the General Partner) from 15.3% to14.5%.*

 

8.     Adoptionof New Accounting Standard

 

*Effective January 1, 2001, the Partnership adopted Statementof Financial Accounting Standards No. 133, “Accounting for DerivativeInstruments and Hedging Activities.” This Statement requires that all derivatives berecognized at fair value in the balance sheet and all changes in fair value berecognized currently in earnings or deferred as a component of othercomprehensive income, depending on the intended use of the derivative, itsresulting designation and its effectiveness.*

* *

*The Partnership enters into forward interest rateagreements, swaps and collars to hedge against the effect of future interest ratemovements on its borrowings.  Theseagreements meet the criteria for hedge accounting and are being treated as cashflow hedges under SFAS No. 133.  OnJanuary 1, 2001, the Partnership recorded an unrealized loss of $0.1 millioncharged to Accumulated Other Comprehensive Income, representing the transitionadjustment for the cash flow hedges. During the nine months ended September 30, 2001, this unrealized lossincreased to $1.6 million due to revaluation of the floating to fixed interestrate swaps and is reflected in Partners’ Capital in the Consolidated Statementof Financial Position. The amounts accumulated in other comprehensive incomeare recognized in earnings as settlements of the swaps occur.  The Partnership does not intend to settlethe interest rate swaps until their maturity date.*

* *

9.     ComprehensiveIncome

 

Comprehensiveincome for the nine months ended September 30, 2001 was $26.7 million (2000 -$50.8 million).  Comprehensive incomefor the three month period ended September 30, 2001 was $6.3 million (2000 -$14.2 million).  Comprehensive income isthe change in equity of a business enterprise from transactions and otherevents and circumstances from non-owner sources. It includes all changes inequity during a period, except those resulting from investments by owners anddistributions to owners. Comprehensive income for the Partnership includes theearnings for the current period less the impact of the floating to fixedinterest rate swap derivative instruments, described in Note 8 above.

 

 

***ITEM2.        MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION***S

 

 

## **Results of Operations**

 

##### ***NineMonths Ended September 30, 2001 Compared with Nine Months Ended September 30,2000***

 

Net income for the nine months ended September 30, 2001, was $28.3million, or $0.72 per unit, compared to $50.8 million, or $1.53 per unit, forthe same period in 2000. The decline in netincome reflects slightly lower revenue and higher operating and administrativeexpenses, including a non-recurring charge for Duluth,Minnesota office severance and lease termination costs.  Earnings per unit were lowerdue to reduced net income and a greater number of units outstanding followingthe issuance of 1.8 million units during the second quarter of 2001.  The weighted average number of Common UnitsOutstanding increased from 28.9 for the nine months ended September 30, 2000 to29.8 million for the same period in 2001. The results of operations for the ninemonths ended September 30, 2001 also include the earnings of Enbridge Pipelines(North Dakota) L.L.C. from the acquisition date of May 18, 2001.  The contribution to net income from theacquisition was $1.5 million for the nine months ended September 30, 2001.

 

Operating revenue for the firstnine months of 2001 decreased $3.1 million, to $228.9 million, over thecorresponding period in 2000 due to declines in deliveries.  These declines were partially offset byincreased tariffs associated with the System Expansion Program II (“SEP II”)and the Terrace Expansion Program (“Terrace”) and the higher indexed tariffeffective July 1, 2001.  Deliveriesaveraged 1.306 million barrels per day for the first nine months of 2001,compared to 1.331 million barrels per day for the same period of 2000. There was also one less pumping day in the firstnine months of 2001 compared to 2000, due to the leap year.

 

Expenses for the first ninemonths of 2001 increased by $19.3 million from the corresponding period lastyear. The increase resulted primarily from higher operating and administrativecosts, which included a non-recurring charge of $5.0 million related to theestimated severance and lease termination costs of relocating the Partnership’soffices from Duluth, Minnesota to Houston, Texas. Operating and administrativecosts were also higher due to increases in oil measurement losses of $4.8million and an adjustment to the estimate of oil inventory due to shippers ofapproximately $5.4 million.  Thisadjustment to oil inventory was the result of refinements in the oil lossestimation process, as well as improvements in the accuracy of measuring oillosses while implementing a new oil accounting system.

 

 

 

##### ***Three Months Ended September 30, 2001 Compared with Three Months EndedSeptember 30, 2000***

 

Net income for the three months ended September 30, 2001, was $6.6million, or $0.13 per unit, compared to $14.2 million, or $0.42 per unit, forthe same period last year.  The decline in quarterly results primarily relates to increases inoperating and administrative expenses.

 

Operating revenue for thethird quarter of 2001 was $75.9 million, an increase of $1.0 million over thecorresponding period in 2000, due to increases in the tariff rates for SEP IIand Terrace effective April 1, 2001, an increase in the indexed rate effective July1, 2001 and the inclusion of revenue from Enbridge Pipelines (North Dakota)L.L.C. from the acquisition date of  May18, 2001. Deliveries averaged 1.208 million barrels per day for the thirdquarter of 2001, compared to 1.272 million barrels per day for the same periodin 2000.

 

Expenses for the three months ended September 30, 2001, increased $9.5million from the corresponding period in 2000. Operating and administrativeexpenses increased by $7.7 million primarily due to an adjustment to theestimate of oil inventory due to shippers of approximately $5.4 million andhigher oil measurement losses.  Oilmeasurement losses are higher due to the wide light-heavy crude oildifferentials experienced during 2001 and the change in the commodity slatecompared to last year.

 

Interest expense for the third quarter of 2001 was $0.7 million lowerthan the same period of 2000 primarily due to lower debt balances and lowerinterest rates.

 

The results of operations for the three-monthand nine-month periods ended September 30, 2001 should not be taken asindicative of the results of operations expected for the full year.

 

**Liquidityand Capital Resources**

 

The Partnership anticipates that it willcontinue to have adequate liquidity to fund future recurring operating,investing and financing activities.  ThePartnership intends to fund ongoing capital expenditures with borrowings, cashgenerated from operating activities, existing cash and cash equivalents and theproceeds from future equity and debt offerings, if any. The Partnership’sability to make future debt and equity offerings will depend on various factorsincluding prevailing market conditions, interest rates and the financialcondition of the Partnership.

 

At September 30, 2001, cash and cashequivalents totaled $48.5 million, compared to $37.2 million at December 31,2000, as cash generated from operating activities exceeded cash required fordistributions and capital related expenditures.  Of this $48.5 million, $29.6 million (or $0.875 per unit) will beused for the cash distribution payable November 14, 2001, with the remaining$18.9 million available for capital expenditures or other business needs.

 

Cash flow from operatingactivities for the first nine months of 2001 was $110.1 million, compared to$98.1 million for the same period last year. The increase is primarily due tochanges in working capital, offset by lower net income.

 

The Partnership anticipatesspending approximately $14.9 million for pipeline system enhancements, $15.0million for core maintenance activities, and $9.3 million for expansionprojects in 2001.  Excluding majorexpansion projects, ongoing capital expenditures are expected to averageapproximately $20.0 million on an annual basis (approximately 50% for coremaintenance and 50% for enhancement of the pipeline system).  Core maintenance activities, such as thereplacement of equipment and preventive maintenance programs, will beundertaken to enable the Partnership's pipeline system to continue to operateat its maximum operating capacity. Enhancements to the pipeline system, such as renewal and replacement ofpipe, are expected to extend the life of the Lakehead System and permit thePartnership to respond to developing industry and government standards and thechanging service expectations of its customers.

 

On October 25, 2001, thePartnership announced that it signed a definitive purchase agreement to acquirenatural gas gathering, treating, processing and transmission assets in eastTexas from Koch Midstream Service Company, L.L.C. for cash of $230.5 millionplus transaction costs.  Thistransaction is expected to close in late November 2001.

 

## **General**

 

# FutureProspects

 

Income and cash flows of the Partnership are sensitiveto oil industry supply and demand in Canada and the United States and theregulatory environment.  As thePartnership's pipeline system is operationally integrated with the EnbridgePipelines System in western Canada, the Partnership's revenues are dependentupon the utilization of the Enbridge Pipelines System by producers of westernCanadian crude oil.

 

Canada has substantial reservesof non-conventional hydrocarbon resources consisting predominantly of oil sandsdeposits in the province of Alberta. Firms involved in the production of heavy and synthetic crude oil fromthe oil sands region of western Canada have announced expansion programs inexcess of Cdn $40 billion.  Alberta OilSands projects are expected to provide substantial increases in the productionof heavy and synthetic crude oil in western Canada well into the future.

 

The Partnership also expects to increase distributable cash flowthrough the development or acquisition of complementary businesses with a riskprofile similar to that of the Enbridge System.  In May 2001, the Partnership acquired the assets of EnbridgePipelines (North Dakota) L.L.C. from Enbridge for an aggregate purchase priceof $35.4 million which included working capital and transaction costs.  On October 25, 2001, the Partnership announcedthe signing of a definitive purchase agreement to purchase natural gas assetsfrom Koch Midstream Service Company, L.L.C. for cash of $230.5 million plustransaction costs.

 

The Partnership may in the future acquire other transportation assetsfrom Enbridge.  Neither the Partnershipnor Enbridge has identified any particular assets owned by Enbridge fortransfer to the Partnership, and no proposal for an acquisition of any of theseassets is currently pending.  ThePartnership cannot predict which, if any, energy transportation assets owned byEnbridge it may ultimately acquire or the terms of any such acquisitions.  Any acquisitions from Enbridge will dependon a number of factors including the availability of acceptable alternativeacquisition opportunities from third parties and the Partnership’s financingcapability at the time acquisition opportunities may arise.

 

Accounting Pronouncements

 

In June2001, the Financial Accounting Standards Board (“FASB”) issued Statement ofFinancial Accounting Standard (“SFAS”) No. 141, "Business Combinations."  This Statement eliminates thepooling-of-interest method of accounting for business combinations and requiresthe use of the purchase method.  Inaddition, it requires the reassessment of intangible assets to determine ifthey are appropriately classified either separately or within goodwill.  This Statement is effective for businesscombinations initiated after June 30, 2001. The Partnership adopted SFAS 141 on July 1, 2001 with no material impacton net income.

 

In June2001, the FASB issued SFAS No. 142, "Goodwill and Other IntangibleAssets."  This Statement eliminatesthe amortization of goodwill and other acquired intangible assets withindefinite economic useful lives.  SFAS142 requires an annual impairment test of goodwill and other intangible assetsthat are not subject to amortization. SFAS 142 is effective for fiscal years beginning after December 15,2001.  The impact of adopting SFAS 142to the Partnership has not yet been determined.  However, as the Partnership has no recorded goodwill and limitedintangible assets, the impact on adoption is not expected to be material.

 

In June 2001, the FASBapproved for issuance SFAS No. 143, "Accounting for Asset RetirementObligations," on the accounting for obligations associated with theretirement of long-lived assets.  SFAS143 requires a liability to be recognized in the financial statements forretirement obligations meeting specific criteria.  Measurement of the initial obligation is to approximate fairvalue with an equivalent amount recorded as an increase in the value of thecapitalized asset.  The asset will bedepreciable in accordance with normal depreciation policy and the liabilitywill be increased, with a charge to the income statement, until the obligationis settled.  SFAS 143 will be effectivefor fiscal years beginning after June 15, 2002.  The potential impact of adopting SFAS 143 to the Partnership has not yet been determined.

 

***ITEM 3.        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK***

 

 

The Partnership’s financial instrumentmarket risk is primarily impacted by changes in interest rates.  The Partnership’s exposure to movements ininterest rates is managed through its long-term debt ratio target, itsallocation of fixed and floating rate debt, and the use of interest rate riskmanagement agreements.  Informationabout the Partnership’s financial instruments that are sensitive to changes ininterest rates has not changed from that presented in the Partnership’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2000.

 

As the Partnership does not ownthe crude oil and natural gas liquids (“NGL”) it transports, its cash flows arenot directly impacted by changes in commodity prices.  However, commodity prices have a direct impact on the underlyingsupply and demand for crude oil and NGL which impacts volumes transported bythe Partnership.

 

The Partnership does not currently hold or issue derivative instrumentsfor trading or speculative purposes.

 

 

***PART II –OTHER INFORMATION***

 

 

***ITEM 1.  LEGAL PROCEEDINGS***

 

The Partnership is aparticipant in various legal proceedings arising in the ordinary course ofbusiness.  Some of these proceedings arecovered, in whole or in part, by insurance. The Partnership believes that theoutcome of all these proceedings will not, individually or in the aggregate,have a material adverse effect on the financial condition of the Partnership.

 

For information regarding otherlegal proceedings arising in 2000 or with regard to which material developmentswere reported during 2000, see Part I. Item 3., "Legal Proceedings,"in the Partnership’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 2000.

 

 

 

 

 

***ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K***

 

 

a)    Exhibits

 

None.

 

b)    Reports on Form 8-K

 

*A report on Form 8-K was filed September 6,2001, submitting a press release dated September 5, 2001, announcing thatLakehead Pipe Line Partners, L.P., effective as of 12:01 a.m. EST September 5,2001, changed its name to “Enbridge Energy Partners, L.P.”  The ticker symbol on the New York StockExchange has changed to “EEP”.*

* *

*A report on Form 8-K was filed November 1,2001, submitting a press release dated October 25, 2001, announcing thatEnbridge Energy Partners, L.P.  signed adefinitive purchase agreement to acquire natural gas gathering, treating,processing and transmission assets in east Texas from Koch Midstream ServicesCompany, LLC.*

* *

 

 

 

 

 

 

 

 

 

 

**SIGNATURE**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 

 
|   |   |    | **ENBRIDGE ENERGY PARTNERS, L.P.**                                                                                                                                                                      |
|--------|--------|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |         |                                 (Registrant) |
|   |   |         |                                                                                                                                                                                                    |
|   |   |         | By:                                                                                                                                                                                                     | Enbridge Energy Company, Inc.  as General Partner |
|   |   |         |                                                                                                                                                                                                    |   |
|   |   |         |                                                                                                                                                                                                    |   |
|   |   |         | */s/J.L. Balko*                                                                                                                                                                                         |
|   |   |         | J.L. Balko                                                                                                                                                                                              |
|   |   |         | Chief  Accountant                                                                                                                                                                                       |
|   |   |         | *(Duly Authorized Officer and Principal  Accounting Officer)*                                                                                                                                           |
|   |   |         |                                                                                                                                                                                                    |
|   |   |         |                                                                                                                                                                                                    |
|   |   |         | Dated:  November 14, 2001                                                                                                                                                                               |
|   |   |         |                                                                                                                                                                                                    |
|   |   |         |                                                                                                                                                                                                    |   |
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